Steps to Take When Forming an Entity

What’s a capital contribution?

In its most basic terms, this is the money (or sometimes the assets, like equipment) you put into your business. It differs from a loan in that it doesn’t accrue interest payable to you. If you put money into your corporation or LLC (or partnership), then the return of that money to you as you start to distribute money to you, is non-taxable.

By | June 15th, 2015|0 Comments

Do I have to make a capital contribution?

No, a capital contribution isn't necessary. But typically you would, and should, make one. You would because there’s almost no way to start a business with zero invested in it. And you should because if your corporation is “under-capitalized”, then you could be exposing yourself and fellow shareholders or members to personal liability, making the formation of the entity a waste of time and money. And it takes more than $1.00 to protect yourself (but nice try).

By | June 15th, 2015|0 Comments

When is an S Corp election due?

For a corporation to be an S Corporation, the paperwork to make that effective is due no more than two months and 15 days after the beginning of the tax year the election is to take effect (yes, I copied that from the IRS instructions). If you’re really ahead of the game, then anytime during a tax year preceding the year you want it to be in effect. For new corporations, the tax year typically begins on a day other than January 1, unless you formed on that date. So, for example, if your corporation was formed on July 8, then the S Corp election would be due 15 days after September 7, or September 22.

By | August 10th, 2015|0 Comments

Can I cause my corporation to be an S Corp at the end of the year, after I see how my year has been?

You wish. But no. Congress treats this election as a go-forward business decision, not a look-back election. The good news is that it’s easy to revoke, or even “bust”, the election. But be careful about switching back and forth – as in, things don’t work that way.

By | August 10th, 2015|0 Comments

Do I need all of the shareholders’ consent for the S Corp election?

Yes. It’s really that simple. Here’s a link to the IRS page that’s chock full of info. PS - Spouses too.

By | August 10th, 2015|0 Comments

How long does it take to form a corporation or LLC, in California? What about other states?

California varies – sometimes it’s a matter of days, but sometimes, especially at the beginning of the year, it can take a couple weeks. You can always submit your documents on a rush (24 hours or even same day) basis. Other states? It really depends. Delaware’s quick.

By | July 12th, 2015|0 Comments

What does it mean to “file” a corporation?

Actually, nothing. To bring a corporation into existence, you submit your Articles of Incorporation with the government agency responsible for processing that paperwork in your state. By submitting the Articles, or “Charter Documents”, and the act by the agency of approving same, you have formed a corporation. You can say “file”, if you want.

By | July 12th, 2015|0 Comments

Is there a lot of paperwork? Do I have to do it all?

There’s some paperwork . . . corporations tend to have more paperwork, which is why some people might immediately gravitate to LLCs, or nothing at all. And, yes, if you want to maintain your status as a corporation, and maintain your limited liability, don’t cut corners on the paperwork. It’s important.

By | July 12th, 2015|0 Comments

I just put my business into a corporation/LLC. Do I have to file paperwork for that?

If you have an existing business, then its assets and contracts should get transferred to your corporation. This can look like an assignment, or a bill of sale. There are tax considerations regarding contribution of the assets of your existing business. You may also need to notify third parties, such as vendors and landlords. A stitch in time, as they say. Paperwork is king.

By | June 15th, 2015|0 Comments

Will there be a background check for me to incorporate?

No. You may get background checked as a vendor, even if you put your business in a corporation. But incorporating does not require any background checking.

By | July 12th, 2015|0 Comments